The following arguments have been advanced against a "minimum wage policy" in Singapore:
1. Our business will be uncompetitive and will move to other countries
2. This policy is difficult to enforce, specially for small businesses
3. Our locals will be costly and lose jobs to foreign workers in Singapore
4. This policy is against free market principles.
5. The low wage workers are entitled to Workfare supplements
6. It will increase unemployment
Do you agree with these arguments? Are there reasons to support a minimum wage policy?
Wednesday, July 30, 2008
Joke: A present from the wife
A: Where did you get this nice suit?
B: It was a present from my wife. I came home unexpectedly early from the office the other evening, and there it was - hanging over the back of a chair in the bedroom.
B: It was a present from my wife. I came home unexpectedly early from the office the other evening, and there it was - hanging over the back of a chair in the bedroom.
Dual Currency Investment
A consumer was persuaded by the bank to invest in a linked-currency product, or also called a dual currency investment. It is explained in this FAQ:
http://www.tankinlian.com/faq/duali.html
He asked me to explain why this product is to the disdvantage of the consumer.
The actual product is quite complex, so it is not easy to understand, and not easy to explain. It involves the use of spot rate and target rate, and the practice or terminology may differ from one bank to another.
I will give a simplified example. Suppose you have SGD 100,000. If you keep it on 1 month deposit, you can earn interest rate of 1.2% p.a. If you buy a AUD-linked product, you may earn say interest at 6% p.a. The difference of 4.8% in interest rate will give you 0.4% for one month.
Suppose that there is a 50% chance that AUD will appreciate by 1% in a month, and 50% chance that it will depreciate by 1%.
If AUD appreciates by 1%, you will not get this gain as you have already been paid the additional 0.4% interest. If AUD depreciates by 1%, you have suffered a loss of 0.6% (after deducting the additional interest of 0.4%).
Why face the risk of losing 0.6%, when your gain is only 0.4% with similar probability?
In real life, there is a risk of making a larger loss of more than 1%. The currency could depreciate by 5% in a month. You will suffer the risk of this large loss, without the benefit of a similar gain, as your actual gain is capped at 0.4%.
The bank officer tells you, "If AUD drops, you can keep AUD and wait for it to recover." This is a misleading advice. You have actually suffered a loss and if you keep it longer, you suffer the risk of a bigger loss.
Look at it from another angle. Due to the arrangement, you had to buy AUD at the earlier price when you could buy it 1 month later at 1% less. So, you have suffered a loss of 1% on AUD and after deducting the 0.4% additional interest, the net loss is 0.6%.
Conclusion: The terms of the dual currency investment are set by the bank in their favor. These terms are usually unfavorable to the consumer. It is best to avoid this type of structured product, as they are structured to your disadvantage.
http://www.tankinlian.com/faq/duali.html
He asked me to explain why this product is to the disdvantage of the consumer.
The actual product is quite complex, so it is not easy to understand, and not easy to explain. It involves the use of spot rate and target rate, and the practice or terminology may differ from one bank to another.
I will give a simplified example. Suppose you have SGD 100,000. If you keep it on 1 month deposit, you can earn interest rate of 1.2% p.a. If you buy a AUD-linked product, you may earn say interest at 6% p.a. The difference of 4.8% in interest rate will give you 0.4% for one month.
Suppose that there is a 50% chance that AUD will appreciate by 1% in a month, and 50% chance that it will depreciate by 1%.
If AUD appreciates by 1%, you will not get this gain as you have already been paid the additional 0.4% interest. If AUD depreciates by 1%, you have suffered a loss of 0.6% (after deducting the additional interest of 0.4%).
Why face the risk of losing 0.6%, when your gain is only 0.4% with similar probability?
In real life, there is a risk of making a larger loss of more than 1%. The currency could depreciate by 5% in a month. You will suffer the risk of this large loss, without the benefit of a similar gain, as your actual gain is capped at 0.4%.
The bank officer tells you, "If AUD drops, you can keep AUD and wait for it to recover." This is a misleading advice. You have actually suffered a loss and if you keep it longer, you suffer the risk of a bigger loss.
Look at it from another angle. Due to the arrangement, you had to buy AUD at the earlier price when you could buy it 1 month later at 1% less. So, you have suffered a loss of 1% on AUD and after deducting the 0.4% additional interest, the net loss is 0.6%.
Conclusion: The terms of the dual currency investment are set by the bank in their favor. These terms are usually unfavorable to the consumer. It is best to avoid this type of structured product, as they are structured to your disadvantage.
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